Expanded Summary

Any kind of business activity depends on finances, which needs proper management. The function of financial management is to obtain the necessary funds and use them effectively. Financial economics is based on macro and micro principles of economics. Investment decisions take into account the existing macro and micro environment. The accounting system creates an information base that helps financial managers make decisions. These two areas are closely related. Financial management methods use mathematics and mathstats called econometrics. The discount factor, time value of money,  cost of capital(WACC), capital structure theory, dividend theories, ratio analysis and working capital analysis are widely use in financial management. Any kind of business activity depends on finances, which ere important component of company management is financial management.

The financial model processes data with high accuracy and quickly transforms it into financial information. It allows to thoroughly study the variables involved in the financial analysis, to identify the critical ones and to evaluate their sensitivity. A financial model can create a picture of the future and be used as a financial forecasting tool. A financial model can also be used to find solutions to a specific business problem.

The financial model includes three financial accounts. The first is the profit and loss account, the second is the financial position, the balance sheet and the third is the cash flow account. The financial model dynamically links the items of these three accounts through formulas. All reports are integrated so that changes in the initial data or assumptions are quickly realized and updated financial reports are created. The financial reporting model is based on international financial and accounting standards.

The goals of financial modeling are: 1) Business assessment; 2) Capital attraction; 3) Business growth; 4) Purchase of businesses; 5) Sale of business assets; 6) Distribution of capital; 7) Budgeting and forecasting (planning for the years ahead); 8) Capital allocation (priority of which projects to invest in); 9) Valuing a business; 10) Financial statement analysis/ratio analysis; 11) Management accounting. 

Financial analysts use appropriate financial models for the listed purposes. Models help management to make informed decisions. The business model is based on a set of basic assumptions, on the basis of which calculations necessary for financial analysis and evaluations are made.

Financial models are proposed in the work, on the basis of which the formation and forecasting of three financial reports, ratio analysis, evaluation of project effectiveness and sensitivity analysis of critical variables are done. The practical implementation of these models is done in the Excel environment with computer programs created in the VBA programming language. Computer programs are a good way to quickly, with the desired accuracy, make the effect of changing one part of the parameters included in the models on the other parts.

The financial model includes three financial statements. The first is the profit and loss account, the second is the financial position, the balance sheet and the third is the cash flow account. The formulas included in the financial model dynamically link the participating items of this report. These reports are integrated into the model in such a way that any changes in the parameters and variables involved in the reports are properly reflected and the financial reports are updated.

Although the structure of a financial plan can vary from company to company, in most cases the main components of most corporate financial plans are: 1) the income statement, 2) the balance sheet, and 3) the cash flow statement. As for the financial forecast, it evaluates the future results of the activity. The practice of forecasting involves four types of tasks: 1) forecasting sales, 2) forecasting cash flows, 3) forecasting budgets, and 4) forecasting revenues and expenses. Budgeting and financial planning are then based on these forecasting results.

Within the framework of forecasting, the assessment and analysis of the factors that have an impact on the resulting variables is carried out. Here, the big problem is that, in many cases, the degree of uncertainty is not known in advance, which increases the risk that the predicted variables deviate from the real ones. In order to reduce forecasting errors, it needs to be done with a proper modeling procedure, which must necessarily mean revising the basic assumptions of the model.

Linear trend, moving average, exponential smoothing models (with trend and seasonality components) and autoregressive integrated moving average model (ARIMA) are used to forecast sales and other variables.

Financial ratios are an important tool of financial analysis. The results of the company's activities are sufficiently correctly and thoroughly interpreted using financial ratios. The previous three models above discussed form the input data for analysis. The result of this analysis should be a conclusion on how viable the company is, how strong its industry and competitive positions are.

Business investment decisions are highly dependent on the cost of capital. When evaluating an investment project, management determines the amount of capital required and its cost. Only those investment projects are worthy of attention, whose expected return exceeds the cost of capital. So, the cost of capital is the most important indicator in making an investment decision. The weighted average cost of capital (WACC) is the minimum that the investment project under consideration should most likely promise.

WACC includes two components - equity and liabilities. In the model, the cost of capital is estimated by the capital asset valuation model (CAPM) and the growth model [3, 12]. Among the factors affecting the cost of capital, the model includes the following: 1) short and medium term interest environment; 2) market and individual risks; 3) Financial market situation and access to capital.

Leveraged and non-leveraged β are used in the model. The cost of capital is variable and depends on the company's ability to continue borrowing. However, the increase in loans is accompanied by an increase in financial risk and, therefore, an increase in interest on new loans. Therefore, in the cost of capital model, it is appropriate not to use the average interest rate of the portfolio of existing liabilities, but it is better to use the marginal interest rate.

An important component of financial modeling is determining the cost of capital (AWCC). For this purpose, a special software module has been created that determines the AWCC using several capital cost methods. Then, this is used in the software module for the evaluation of investment projects, which allows the evaluation of such characteristics of investment projects as - NPV, IRR and the ratio - benefit from the project / cost. A sensitive analysis of the project's effectiveness is performed with respect to such variables as - sales price, cost of funds and unit cost of production.

Companies need to invest in projects that must result in positive cash flows in order to increase their value and to adequately compensate capital providers. An important component of financial modeling is determining the cost of capital (AWCC). For this purpose, a special software module has been created that determines the AWCC using several capital cost methods. Then, this is used in the software module for the evaluation of investment projects, which allows the evaluation of such characteristics of investment projects as - NPV, IRR and the ratio - benefit from the project. 

Keywords: financial modeling, three statements financial model, financial statement ratio-analyses, sales forecasting methods, investment projects valuation, weighted average cost of capital (WACC), net present value (NPV), internal rate of return (IRR).